Goldman Cuts Japan Growth Outlook Citing Worsening Consumer Mood

Goldman Sachs Group Inc. cut its forecast for Japanese growth as consumers remain shy about spending six months after a sales tax increase.

The economy may expand 0.1 percent in the fiscal year ending March 2015, compared with a previous forecast of 0.3 percent growth, Tokyo-based economists Naohiko Baba and Yuriko Tanaka wrote in a note dated Tuesday. The economy will expand 2.9 percent in the current quarter, less than a previous forecast of 3.8 percent, they said.

Japan’s recovery is being hampered by a protracted slump in sentiment following the tax bump in April, highlighting the challenge faced by Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda. Household spending has fallen every month since then, while consumer confidence dropped in September by the most in seven months and gross domestic product had its biggest contraction in more than five years last quarter.

“Consumer sentiment took a turn for the worse last month, following a deterioration in the spending data,” Baba and Tanaka said in the note. “The economy and prices are going in the wrong direction for the BOJ.”

The central bank is buying about 7 trillion yen ($65 billion) of mainly government debt each month in an effort to help spur inflation to 2 percent as part of Abe’s plan to pull Japan out of decades of declining prices and economic stagnation. Kuroda said last week the BOJ has scope to buy more assets, and pledged to adjust stimulus “without hesitation” if needed.

The earliest that policy makers could increase quantitative easing is probably January, as they take time to assess developments in the inflation data, according to Baba and Tanaka. That’s when seven of the 33 economists surveyed by Bloomberg predict additional easing, the most popular choice of month. Eleven respondents expect no expansion to the asset- purchase program.

The government is expected to decide later this year whether to go through with plans for a further bump in the levy in October 2015.